Charles R. Schwab unveiled the country’s first discount brokerage firm amid great skepticism from industry experts. His idea was to create a new form of stock brokerage for the masses. Average people looking to grow their individual wealth in a burgeoning market were able to do so without the expense of dealing with high-priced Wall Street firms. Thanks to Schwab, the stock market finally opened to a constituency of individual and novice investors looking to get a piece of the market. Schwab himself saw a huge return on his venture. Today, he serves as executive chairman and largest shareholder of the brokerage, which oversees 9.3 million client accounts and bears his name. 

Investing in Investors: Schwab’s Rise

Unsatisfied with his position at a local investment advisory service in Stanford, California, Schwab left the firm to work for himself despite being promoted to vice president. Schwab teamed up with two friends in 1963 to launch an advisory newsletter for investors, the “Investment Indicator,” which grew quickly, pulled in 3,000 subscribers at its peak and branched out to include a $20 million mutual fund. The business met troubles following the 1969 market crash, incurring a $100,000 debt from a court battle with the state of Texas. Luckily for Schwab, his uncle Bill paid off his debts and offered him a matching loan that allowed him to establish the San Francisco based traditional brokerage firm First Commander Corp. in a two-room office in 1971. After buying out his partners and assuming the company’s debt two years later, he changed the company’s name to Charles Schwab & Co., Inc.

In 1975, Schwab saw an opportunity to separate himself from the brokerage pack as he observed competitors taking advantage of a new Securities and Exchange Commission (SEC) ruling that scrapped the fixed-rate system for buying and selling stocks in favor of negotiated rates. Brokers could now charge whatever they wanted— and they did. The new unregulated system saw lower rates adjusted for large institutional clients and higher, inflated rates for the individual investor with little focus on the growth of the small-investor market. Schwab identified and targeted an untapped market, and in the process he established his niche in the newly minted discount brokerage industry.

Schwab implemented fast transactions and dramatically low commission and trading fees – as much as half that of his competition – all for the same services offered by traditional brokerage firms. Further extending his reach to individual markets, Schwab participated in client seminars, introduced the industry’s first 24-hour, weekday quote service for orders and invested in technology. Schwab became an e-commerce pioneer when he became one of the first brokers to launch online products and deliver stock quotes directly to customers via computer-based systems.

Schwab opened branch offices in forty cities and offered additional personal investment services. Both his clients and his employees grew exponentially, and by 1981 his brokerage was bringing in annual revenue of $42 million. As costs mounted, Schwab sold his company to Bank of America (BAC) for $57 million worth of the B of A's stock only to buy it back six years later for an unprecedented $230 million and turn to the IPO market for capital. The Charles Schwab Corporation (SCHW) (Charles Schwab & Co.’s parent corporation) went public in 1987 completing an IPO of eight million shares at $16.50.

Ahead of the internet boom, Schwab rolled out e.Schwab in 1995, one of the internet’s first online discount brokerage sites. Three years later e.Schwab completed more than half the firm’s trades and took the top spot as the number-one online trader with 1.8 million accounts. Today, Schwab’s footprint is international, with an Asian, European, and Caribbean offices in addition to over 300 in the United States. The company has also expanded into a fully-functioning financial institution providing banking services and products. 2003 saw the launch of the Charles Schwab Bank, which was set up as a modest consumer bank to keep the company steady in the event of a market panic, and saw record breaking profits in 2008 when the market did meltdown and customers flocked to Schwab from the big-name banks.

Schwab’s Key to Success

Charles Schwab built his investor-friendly business model on accessibility, allowing amateur and experienced individual investors to invest in the stock market. Tailored newsletters, around-the-clock investment services and pioneering e-trading tools are just some techniques that helped create a personalized experience for the individual investor.  Schwab knew that enhancing affordability was key in targeting the small-investor market and saw deregulation as an opportunity to slash commission rates at a time when most brokerages elevated them considerably. The discount brokerage king called for personal touches in every facet of his operation, increasing client retention and brand enhancement. The evidence of his personal touch is evident in his marketing model that features a headshot of himself in nearly all company advertising. Schwab transformed transactions between clients and brokers into a personal, relatable partnerships.

 “The King of Online Brokers

The 77-year-old pioneer has amassed quite a sizable fortune from his tenure as Founder and Chairman of the Charles Schwab Corporation. As the single largest shareholder of the $2.45 trillion firm with a 14% stake, Schwab’s net worth is $6.2 billion and rising (not bad for a man whose first job was selling walnuts, eggs and chicken). Since taking his company public in 1987, he’s collected more than $1.6 billion from share sales and dividends and took in additional $1.7 billion in 2013 after Schwab stock soared 74%. 

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